Bankruptcy is as much about asset protection as it is debt relief. In Michigan, debtors who file for Chapter 7 bankruptcy protection are entitled to choose between the federal exemptions or the state system of exemptions.
What is an exemption?
An exemption is property that you are allowed to keep, even though it may have some value. Many people think that bankruptcy means they will lose everything they own. That’s far from the truth — done correctly, exemptions often allow people to keep the majority of their property.
What sort of exemptions are allowed under Michigan law?
You can generally keep all of your family photos, clothing (except for fur coats), burial plots, health aids, up to six months worth of fuel and food for your family, up to $3000 worth of household goods, furnishings, and jewelry, up to $2,775 in equity in a car, one computer and accessories worth up to $500 and $2000 worth of tools needed to carry out your trade.
In addition there are numerous exemptions that apply to your retirement accounts, annuities, stocks and bonds.
What sort of exemptions are allowed under Federal law?
For the most part, the exact same things are allowed to be exempt under federal law. What tends to differ is the exact amount of any given thing, such as the amount of equity that you can have in a car that you keep or the value of your furnishings and other home goods.
Does every state allow debtors a choice?
No, this is not a privilege in all states and you need to consult with your attorney in order to determine which system works better for you. You cannot “mix and match” exemptions between the federal and state rules. Once you choose one, you’re locked into that process — so choose carefully.
How do you decide which system is right?
The best thing to do is gather an inventory of all of your assets at the same time that you take inventory of your debts. Bring both with you to your attorney’s office so that you can consult with your bankruptcy attorney. It’s likely to become clear which system will benefit you more at that time.
Source: FindLaw, “Exempt vs. Non-exempt Property Under Chapter 7,” accessed March 17, 2017